Topdanmark A/S : Årsrapport 2023 (engelsk) (9 MB)

Annual Report 2023

Topdanmark A/S

Borupvang 4, DK-2750 Ballerup

CVR no. 78040017

Topdanmark Annual Report 2023

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Topdanmark's equity story

Profitable growth - in that order

Focused strategy

• The Topdanmark share is a value case with ambitions to grow profitably
• Danish player
• Focused P&C insurance company
• Stable insurance risks
• Limited financial risk
• Efficient capital management
• High return on own funds
• No protection against takeover in the Articles of Association.

See the presentation of Topdanmark's equity story at www.topdanmark.com → Investors →Share profile

Read about value creation in Topdanmark at www.topdanmark.com → Investors → Investment case →Value creation

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Purpose and ambition

Topdanmark wants to make a difference to our customers, employees and society, and to play an active role in solving the challenges of our society.

The purpose of Topdanmark is to help our customers before, during and after a claim. We are proactive and assist with prevention, so damage and injuries do not occur, and we want to promote well-being and good health. When the damage has occurred or the customer has fallen ill, we help limit the consequences in the best possible way, and we pay out compensation. This also means that we want to deliver more than just insurance products.

We want to be the market leader in terms of the delivery and development of claims solutions and additional services which create value for customers, partners and society. Satisfied customers are our livelihood, and we always endeavour to deliver good customer experiences making it easy to be a Topdanmark customer. The essence of our ambitions can be summed up in our promise to our customers:

"We are here to help."

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Contents
Management's
6 review	37
Letter to our shareholders
Highlights
Financial highlights
Results for 2023
Results for Q4 2023
Insurance service result 2023
Insurance service result Q4 2023
Investment result
Solvency calculation and capital requirements
Parent company etc.
Taxation
Efficiency programme	55
New IT systems
Profit forecast model for 2024

Corporate

Governance

Corporate Governance

Board of Directors and Articles of Association Amendments to the Company's Articles of Association Severance pay

Remuneration structure Board of Directors Executive Board

Annual financial statements

- Group

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Shareholder information

Capital policy

Capital structure and ownership Distribution of dividend for 2023 Annual General Meeting Financial calendar

Company announcements

Five-year summary

Income statement

Statement of comprehensive income

Assets

Shareholders' equity and liabilities

Cash flow statement

Statement of changes in equity

Notes to the financial statements

104 Annual financial statements

- Parent company

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Sustainability

Sustainability is anchored in our business strategy Strategic targets, actions and progress in 2023 Reporting on the EU taxonomy

Preparing the first CSRD statement in 2024

Risk management

Risk management

Income statement

Statement of comprehensive income Balance sheet

Statement of changes in equity Notes to the financial statements Disclaimer

Statement by Management on the Annual Report Independent auditor's report

Management's review

2023 was another eventful year for Topdanmark. In March, we announced the acquisition of

Oona Health A/S.

Management's review

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Shaping a full-service P&C insurance company with market-leading profitability

A letter to our shareholders from the Chairman of the Board and the Group CEO

2023 was another eventful year for Topdanmark. In March, we announced the acquisition of Oona Health A/S, including the market-leading Danish health insurance provider Dansk Sundhedssikring. The timing of the acquisition was favourable, as we had completed the divestment of our life insurance operations just a few months earlier. After the divestment, Topdanmark had no market share or significant capabilities within health insurance and solutions - all of which Oona Health has in abundance. We see a strong strategic fit between Topdanmark and Oona Health as we see personal health solutions as a strategic focus area for any insurance company for many years to come, not least in terms of customer loyalty and market growth. Oona Health will continue to operate as a standalone company to best allow it to continue the innovative and high-growth journey that has characterised the company for many years. However, we will seek to reap all possible synergies between the two companies, including selling Oona Health's products to Topdanmark's existing customers and vice versa.

From a macroeconomic perspective, 2023 also turned out to be quite eventful. Geopolitical

tensions remain elevated with continued Russian aggressions in Ukraine and the war between Israel and Hamas. In addition,

rising inflation has been followed by rising wage growth, supporting higher interest rates which seem to remain for a prolonged period. However, interest rates fell sharply during the last months of the year. All of this has affected individuals, enterprises, and equity markets on a global scale. This macroeconomic uncertainty also

affects Topdanmark, and consequently we have decided to de-risk our investment portfolio further through reducing our equity exposure by more than 40% during the year in addition to reducing our CLO exposure to zero.

In addition to this, 2023 was marked by a high level of weather-related and large-scale claims as well as a rising claims frequency within motor insurance. Further, reinsurance markets were hard, affecting both 2023 and future years. As a result, we reported a net profit of DKK 1,051m or DKK 898m before run-off, below our original expectation of DKK 1,050-1,310m before run-off at the beginning of 2023, fully explained by the higher amount of weather- related claims. Consequently, the Board of Directors will propose a dividend payment

of DKK 11.5 per share for 2023. The combined ratio was 87.6 before run-off, above our original expectation of 83-86 before run-off. The adverse developments during the year call for actions across our entire organisation, and we will continue our efforts to improve profitability e.g. by way of efficiencies, procurement initiatives, and pricing actions. This way, we seek to consolidate our market-leading profitability within Danish P&C insurance.

As a fundamental part of our strategy, we seek to create long-term shareholder value through committed and motivated employees, who ensure first-class customer experiences, which in turn create satisfaction and loyalty to the benefit of our shareholders. Therefore, we are very pleased that we maintain our historically high employee satisfaction level of 81. Likewise, we continue to see a stable, high transactional net promoter score (tNPS). We actively work to strengthen our customer offerings in close collaboration with partners, and we have recently launched embedded cyber insurance with internet provided by Norlys.

Insurance companies have long played an important role in supporting the Danish

Management's review

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Peter Hermann,

Group CEO (Left) and

Ricard Wennerklint,

Chairman

of the Board (Right)

labour market, and Topdanmark continues to strengthen its position as one of the leading companies within this field. Prevention of injuries and illnesses is an important element of our business, and we continue to invest in the concept Topdanmark Recovery and Work Rehabilitation ensuring SME customers that they can retain their employees after an injury. A good example is the investment in exoskeletons as a part of the concept. In the past year, we have seen a 5% increase of severe injuries in workers' compensation. To address and counteract the negative development, we have been working with exoskeletons more intensively during 2023, as they are helpful for both customers having suffered an injury, and an effective means of prevention, as it can lessen the physical load on the body.

Topdanmark also continues to support the unique mobility in the Danish labour market. We are the first company to develop and launch insurance providing security for those who change jobs. This is an excellent example of a product that creates security for the employee while at the same time making it easier for an employer to attract candidates.

Climate change and increasingly extreme weather continued to affect our private, agricultural and commercial customers. In fact, 2023 became the wettest year ever in Denmark, and we have helped 94% more customers who have been affected by damage related

to precipitation and cloudbursts compared to the average over the past five years. In this light, we continue to invest in and popularise several preventive measures to the benefit of our customers, society and us as a company. For example, we sent out warnings and advice specifically targeted at customers living in

high-risk areas giving them the opportunity to prepare for the events.

2023 was yet another year of progress with our strategic agenda by preparing our new core IT system, Guidewire. The first implementation wave - agricultural customers - is now finalised, and we have already gone live with the first private customers as part of the second wave. Our overarching ambition is still to be able to solve 80% of all customer inquiries within 20 seconds. But our investments are also starting to affect the customer-facing processes as we launched our new app in December and are redesigning digital interfaces to provide even simpler and seamless customer experiences.

We have also seen continued good traction on our efficiency programme, which aims to improve our profitability by leveraging automation and digitalisation across the value chain, a best-in-class procurement setup, and

a stringent focus on risk and pricing. In 2023, we delivered gross savings of DKK 430m in line with expectations, and we remain on track to reach DKK 650m of gross savings by 2025.

Lastly, the Board of Directors and the Group Executive Management would like to express their gratitude to all employees for their outstanding contributions throughout the year. In a year marked by our acquisition of Oona Health as well as continued efforts to hand over the life insurance company to Nordea, we sincerely appreciate your unwavering commitment to providing best-in-class experiences for our customers.

Peter Hermann	Ricard Wennerklint
Group CEO	Chairman of the Board

Management's review

Highlights

2023

Profit after tax, continuing operations, of

DKK 1,051m

(2022: DKK 1,078m)

• EPS, continuing operations was DKK 11.9 (2022: DKK 12.2)
• Combined ratio: 85.6 (2022: 82.4)
• Combined ratio excluding run-off: 87.6
  (2022: 83.9)
• Insurance revenue increased by 2.7% including Oona Health (2.1% excluding Oona)
• Net investment result was DKK 97m (2022: DKK -244m).

Q4 2023

Profit after tax, continuing operations, of

DKK 157m

(Q4 2022: DKK 497m)

• EPS, continuing operations was DKK 1.8 (Q4 2022: DKK 5.6)
• Combined ratio: 91.8 (Q4 2022: 81.2)
• Combined ratio excluding run-off: 93.9
  (Q4 2022: 84.0)
• Insurance revenue increased by 5.1% including Oona Health (2.5% excluding Oona)
• Net investment result was DKK 110m (Q4 2022: DKK 193m).

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Dividend distribution for 2023

• The Board of Directors will recommend to the AGM the distribution of a dividend of
  DKK 1,035m, representing DKK 11.5 per share, a pay-out ratio of 98.4 and a dividend yield of 3.6.
• Subject to the approval from the AGM, the distribution of dividend will take place immediately after the AGM on 23 April 2024.

Profit forecast model for 2024

• Organic growth in insurance revenue is assumed to be above 4.5%. Reported growth in insurance revenue will be above 11.5% due to the acquisition of Oona Health as of
  1 December 2023.
• Combined ratio is assumed in the range of
  82-85 including run-off. Please note that this represents a change in practice compared to previous years, where the profit forecast excluded run-off. The rapid decline in interest rates observed in December 2023 impacts our forecast negatively by approx. 70bps compared to the level at Q3 2023. As expected, the expense ratio will increase and reach its peak in 2024. Compared to 2023, the expense ratio is also negatively impacted by approx. 20bps from the inclusion of Oona Health. Apart from the above, the assumptions are unchanged compared to the beginning of 2023 despite the observed headwinds from reinsurance (Catastrophe and Fire programmes) and higher loss frequencies.
  For these reasons, the profit forecast for 2024 amounts to DKK 1,150-1,425m after tax and including run-off.

Acquisition of Oona Health A/S

• On 27 October 2023, we received the final regulatory approval from the Danish Competition and Consumer Authority, and
  the acquisition was completed on 1 December 2023.
• As a result, Oona Health is included in Group results from 1 December 2023. The Q4 2023 result includes one-off costs of DKK 35m related to the transaction and booked on the new line item "special costs".

Management's review

2023

Combined ratio: 82.7

Adjusted to normalised weather-related and large-scale claims.

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Efficiency programme

• In 2023, we continued the sound progress in our efforts to become more efficient.
• We realised gross efficiency gains of DKK 430m in 2023, in line with the expectations at the start of the year.
• The programme continues to target gross efficiency gains of DKK 650m in 2025, of which DKK 540m in 2024.

Annual General Meeting

The Annual General Meeting (AGM) will take place on 23 April 2024 at 13:00 (CET), and it will be held as a fully virtual AGM.

The agenda for the Annual General Meeting will be published in the period from 18 March to 27 March 2024.

2023	2024
Oona	Profit
Health A/S	forecast

The acquisition was completed on 1 December 2023.

Profit forecast for 2024 of DKK 1,150- 1,425m incl. run-off with CR of 82-85 incl. run-off and organic growth above 4.5%. (Please refer to page 20 for more details)

Management's review

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Financial highlights

									Q4	Q4
(DKKm)	2023	2022			2021	2020	2019		2023	2022
Insurance revenue	10,168	9,898	9,607	9,096	8,938		2,612	2,485
Claims incurred	-6,762	-6,296	-6,246	-6,034	-5,517		-1,879	-1,498
Expenses	-1,671	-1,555	-1,466	-1,471	-1,411		-455	-426
Reinsurance result	-228	-272	-100	-272	-226		-50	-86
Insurance service result	1,507	1,774			1,795	1,319	1,785		227	476
Net investment result	97	-244	599	30	198		110	193
Other items	-106	-90	-52	-46	-35		-70	-10
Profit on insurance	1,498	1,441			2,342	1,303	1,948		267	658
Special costs	-39	0	0	0	0		-39	0
Parent company etc.	-35	-59	-35	34	60		-15	-10
Profit before tax, continuing operations	1,424	1,382			2,307	1,336	2,007		213	648
Tax, continuing operations	-372	-305	-511	-301	-444		-56	-151
Profit after tax, continuing operations	1,051	1,078			1,796	1,035	1,563		157	497
Profit after tax, discontinued operations	0	1,102	248	54	64		0	879
Profit	1,051	2,179			2,045	1,089	1,627		157	1,376
Run-off profits, net of reinsurance	204	152	43	-26	431		56	71
Investment assets	15,414	19,269	114,314	103,608	93,497
Reinsurance asset	587	591	692	553	665
Provisions for insurance contracts	13,939	13,235	101,872	91,567	82,683
Provisions for investment contracts	0	0	5,000	4,299	4,157
Shareholders' equity	4,722	6,349	7,119	6,705	6,258
Total balance	21,826	22,603	119,940	108,935	98,088
Financial ratios
Return on shareholders' equity after tax (annualised)	20.6	36.3	31.5	17.2	28.3		13.4	97.3
EPS continuing operations after tax (DKK)	11.9	12.2	20.4	11.9	18.0		1.8	5.6
EPS after tax (DKK)	11.9	24.7	23.3	12.5	18.7		1.8	15.6
Dividend per share issued, proposed (DKK)	11.5	31.0	34.5	20.0	8.5
Net asset value per share, diluted (DKK)	52.9	71.4	80.9	76.5	71.6
Listed share price end of period	322.4	365.4	367.0	264.2	328.4
Number of shares end of period ('000)	88,751	88,518	87,978	87,491	87,067
Average number of shares ('000)	88,686	88,206	87,703	87,266	86,824		88,773	88,401
Insurance ratios
Gross claims ratio	66.7	63.7	65.1	66.5	61.9		72.1	60.3
Net reinsurance ratio	2.2	2.8	1.0	3.0	2.5		1.9	3.5
Claims ratio, net of reinsurance	68.9	66.5			66.2	69.5	64.4		74.0	63.8
Gross expense ratio	16.7	15.9	15.5	16.5	16.1		17.8	17.4
Combined ratio	85.6	82.4			81.6	85.9	80.4		91.8	81.2
Combined ratio excl. run-off profits	87.6	83.9			82.1	85.6	85.3		93.9	84.0

Comparatives for continued operations have been restated to new accounting policies.

For discontinued operations, comparatives for 2022 have been restated.